My initial response to news reports that the National Assembly was looking to rein in the Central Bank of Nigeria (CBN), through an amendment to its enabling statute, was to wonder whether we are not about to throw the bath water away because a stroppy moppet would not take its bath. From the day he took office, Sanusi Lamido Sanusi (SLS) left few observers in doubt of his intention to run the office of governor of the CBN differently. What was most difficult to come to terms with was his readiness to air his opinion − a habitude most still cannot reconcile with the austere circumstances traditionally associated with the office. Even more disturbing was his willingness to plight his troth to one corner in any of the debates on issues around which we are yet to build a consensus as a people. The trouble in this was not, therefore, that he then became part of potentially divisive discourses. Nor that he held contrarian opinion even in such circumstances. Weighty though all these are in their separate rights, the bigger concern was largely that, this way, he ran the risk of diverting attention and resources from his “primary assignment” of maintaining price stability.
Did this matter, in the end? Arguably, the task of anchoring inflation expectations is as much the consequence of the central bank’s policy actions as it is dependent on the credibility of the bank’s leadership. On this measure, the jury will be out for a while yet. Inflation was at 11.2% as at June 2009, when SLS was appointed governor of the CBN. As at end-March 2012, the consumer price index was 12.1%. Farcical? Pedestrian, even! Given the volatility of domestic prices over the last three years, it is hard to make much of these numbers. There’s a huge space for the adverse influence of government spending on prices during this period. Just as the weather generally conduced to the good harvests, which had a beneficial effect on food prices.
But it is difficult to niggle at the fact that the CBN’s tightening of monetary policy over the past two plan periods was consistent with its mandate and in full accord with the literature’s prescriptions for central bank responses to rising prices. No less admirable was the 2009 stress test of banks, and the speed with which the CBN designed and implemented solutions to the identified lapses. Contentious then, and in parts, still subject to litigation, but the strength of the apex bank’s action lay in its ability to take the sting out of two complimentary (but potentially disruptive) events: the global financial and economic crisis; and the collapse of the domestic stock market.
How does the National Assembly’s current initiative with respect the apex bank address all of these? For starters, the strongest argument against any legislative action is simply put. It is not just inefficient, but it is wrong to design policy responses (especially laws) around individuals. There must instead, be a relationship between proposed laws, and intended increases in the commonweal’s net welfare. This was the primary goal of the 2007 CBN Act. For too long, a central bank in hock to the finance ministry, had contributed to the extensive macroeconomic policy displacement that the Nigerian economy had become a by-word for. Granting the CBN legal and operational independence was thus conceived as part of a new national financial architecture that saw monetary policy as a foil to the fiscal side. Has this experiment been successful? The degree of causation and correlation are always problems when interrogating economic phenomenon, but can we make anything of the fact that since the act came into force, the CBN has been to the fore and centre in efforts to reinforce the financial services sector from diverse external shocks?
Would the CBN be better able to do this, if as planned, the National Assembly removes the governor as the chair of the bank’s board, and subjects the bank’s budget to legislative oversight? In its favour, legislators have advocated these changes as necessary if we are to end the bank’s penchant for reckless spending, and for keeping secret budgets. The CBN, on the other hand, argues that its board has as much external members on it, as to meet the most exacting corporate governance standards, and that operational and legal autonomy does not mean its budgeting process is any less transparent.
This begs the question, really. Why should the CBN worry about legislative oversight of its budget, if it is currently comfortable with making “a formal report and presentation on the activities of the Bank and the performance of the economy to the relevant committees of the National Assembly” at semi-annual hearings? Conversely, the CBN Act’s provision that its “board shall consist of a Governor who shall be the Chairman” flies in the face of the central thinking in the CBN’s corporate governance code for banks: “The responsibilities of the head of the Board, that is the Chairman, should be clearly separated from that of the head of Management, i.e. MD/CEO, such that no one individual/related party has unfettered powers of decision making by occupying the two positions at the same time”.
Time, then to bring the CBN Act 2007 up to scratch?